Richard C. Longworth, senior fellow at The Chicago Council on Global Affairs, contributes his knowledge and ideas about issues that affect the Midwest.

Monday, March 12, 2012

Old Industrial Cities: What Works and What Doesn't

The Midwestern landscape is pocked with old industrial cities whose industries have mostly gone away. Some have turned the corner from their industrial past and are beginning to thrive in the global age. Others remain poor, rusted, shrinking, locked in the past.

Which raises the question: why are some of these cities succeeding, others failing? Is there a key, a magic bullet, a successful policy that all should adopt?

An obvious question, you'd think, except that no one has thought to answer it by comparing these cities in a systematic, in-depth way. Until now.

The Community Development and Policy Studies division of the Chicago Federal Reserve Bank works with Midwestern banks and towns to help distressed communities, so the transformation of these cities is vital to its goal. Recently, it dispatched ten staff members to ten cities -- two in each of the five states in the Chicago Fed's region -- to probe what these cities are and are not doing, to see if any patterns emerged.

The result is a working paper, "Industrial Cities Initiative," available on the Fed's website. It's a work in progress, aimed at refining techniques and coordinating data, with more reports to come, either on these ten cities or on others.

(Personal disclosure: my daughter, a business economist at the Fed, was a contributing author to this report, so I regard it with paternal pride. But as a writer on Midwestern economies myself, I also regard it as a valuable, even ground-breaking, contribution.)

The Fed team found 47 cities that each had 50,000 population in 1960, when manufacturing accounted for at least 25 percent of total employment. From these 47, they picked ten -- Aurora and Joliet in Illinois, Fort Wayne and Gary in Indiana, Cedar Rapids and Waterloo in Iowa, Grand Rapids and Pontiac in Michigan, and Green Bay and Racine in Wisconsin.

Working with data backed by on-scene reporting, they sorted the ten into four categories:

Resurgent industrial cities. These are relatively prosperous cities that have lost relatively fewer manufacturing jobs. They include Cedar Rapids, Fort Wayne, Grand Rapids and Green Bay.

Transforming cities. They had sharp declines in manufacturing jobs, but have improved measures of well-being. The two Illinois cities, Joliet and Aurora, belong here.

Fading cities. They have lost relatively fewer manufacturing jobs but have seen declines in well-being. Waterloo and Racine are in this category.

Overwhelmed cities, which have suffered sharp declines in both manufacturing jobs and well-being. Gary and Pontiac are in this unenviable slot.

Measures of well-being include changes in population, employment and median family income. Some of these categories are arbitrary -- Waterloo and Racine, for instance, are troubled cities embedded in relatively strong regions -- but the statistics make useful comparison.

Armed with the data, the Fed team singled out four themes that can make or break economic revival:

Work force development/skills mismatch. This is basically education and worker training.

Economic development finance. Development requires money. Successful cities know how to get it, how to leverage private investment and, if lucky, how to get philanthropic dollars.

Regionalism/globalism. Successful cities know they're in a global economy and work with a broader region to compete.

Leadership. The great intangible -- developing a cadre of leaders who can articulate a vision and make it come true.

From my point of view, the two most interesting themes are the last two --regionalism/globalism and leadership.

Shortcomings in secondary education is a major problem everywhere, but every city seems aware of the need to improve worker training. Most cities are working with community colleges to prepare workers. Some do better than others and some cities have more success in recruiting businesses to this effort, but awareness of the need for better training seems universal.

The same holds true for finance. Every city knows it needs money to do what it wants to do and is working hard to get investment, government grants and other funds. Fort Wayne and, especially, Grand Rapids have benefitted from local philanthropy. Some cities have casinos. Many cities use tax increment financing. But all see the need and are working hard to get the money -- with the possible exceptions of Pontiac and, especially, Gary, which is starved for private funding and relies heavily on federal money just to keep going.

Global awareness coupled with a regional approach, however, is crucial. If all the cities understand the need for smart workers and adequate funding, some cities understand that they're in a global competition and need all the regional leverage they can find, while others still don't get it. This is a crucial difference between successful and unsuccessful cities.

Joliet, with its intermodal yards, sees itself on the global highway. Grand Rapids is the hub of a vibrant western Michigan region. Green Bay is working to be part of a regional supply chain for the wind industry. Cedar Rapids is making common cause with Iowa City. But "overwhelmed cities" like Gary and Pontiac seem baffled by globalization and scornful of neighbors.

The same holds true for leadership. Economists sometimes give this factor short shrift, because no data can measure it. But leadership is like sex appeal -- hard to quantify, but you know it when you see it.

But there's something else about leadership: it can come from anywhere. In some of the Fed's cities, successful leadership came from mayors or other politicians. More often, it came from business leaders or economic development officials. My experience in other successful cities says that local colleges can take the lead.

The key, the Fed said, is to have a vision for the future and to communicate it to the community, which has to buy into the vision. It's not easy -- but it's necessary.

If you're waiting for the airlines to be re-regulated, you're gonna wait a long time.

Cincinnati is increasingly a corporate town that's leaving the old ways behind. The old money has finally woken up and decided to get its act together.

Memphis will be just fine. FedEx isn't going anywhere.

Yes, St Louis is in bad shape but most of that is due to demographics and then somewhat about organized labor. I don't know if you can fix St Louis just as I don't know if you can fix Cleveland or Detroit. They don't want to change.

The Global Midwest Initiative of The Chicago Council on Global Affairs is a regional effort to promote interstate dialogue and to serve as a resource for those interested in the Midwest's ability to navigate today's global landscape.